BIR Ruling

October 19, 1977 Kalahan Educational Foundation, Inc. Imugan, Santa Fe, Nueva Vizcaya Attention: Mr . Delbert Rice Executive Officer Gentlemen : This refers to your letter dated October 5, 1977 stating that the Kalahan Educational Foundation Inc. is a non-stock and non-profit corporation organized and registered according to the laws of the Republic of the Philippines, by, for and in behalf of the Kalahan cultural community, found in Nueva Vizcaya and adjacent areas; that on May 13, 1974 said foundation was granted by the Bureau of Forest Development a gratuitous lease for a period of 25 years of 14,730 hectares of public forest located within the barrios of Malico, Imugan, Baracbac, and Bacneng in the municipality of Santa Fe, Nueva Vizcaya, and Municipality of San Nicolas, Pangasinan for the purpose of developing and improving the same into multi-purpose forest; and that by virtue of the amendment of such agreement dated April 22, 1977, the Foundation was granted the right "to cut, gather, harvest, utilize and sell any or all forest products, including agricultural products, found and/or cultivated, planted or propagated in the area without the further necessity of securing the appropriate license, lease, or permit, as the case may be, from the Bureau of Forest Development provided that the proceeds which shall accrue to it from the sale of such products shall be used in the furtherance of the objectives and purposes for which the Kalahan Educational Foundation was established ." (Emphasis ours) Based on said representation you now request for a ruling as to whether or not your foundation is exempt from payment of forest charges imposed by the Tax Code on forest products removed from the leased area. In reply, I have the honor to inform you that Section 271 of the Tax Code provides: "No charge shall be collected on forest products removed in conformity with the terms of a gratuitous license of the Bureau of Forestry and in compliance with the law and the regulations of such Bureau." Section 15 of Revenue Regulations No. 3-72 provides as follows: "Forest products cut or gathered under a gratuitous license issued by the Director of Forestry shall be invoiced irrespective of the group of timber, and to be discharged in the same manner as forest products cut or gathered under license, except that no forest charges are due thereon . The word "gratuitous" shall be written on the auxiliary invoice after the number of the forestry license. Any violation of the requirement to prepare the auxiliary invoice after cutting shall be deemed as cutting without license. Copies of the auxiliary invoice must be distributed in the same manner prescribed in this regulations." (Emphasis ours) Under the above-quoted provisions of law and regulations and considering the agreement entered into between that Foundation and the Bureau of Forest Development, the forest products removed from the gratuitously leased forested area are exempt from the payment of the forest charges. However, in removing said forest products, the aforesaid provision of Section 15 of Revenue Regulations No. 3-72 should be strictly complied with. Very truly yours, CONRADO P. DIAZ Acting Commissioner of Internal Revenue TAN-D2567-D1025-A-2